My Advertising Costs Are Too High… What Should I Do?

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Introduction

Welcome, fellow entrepreneurs and marketers! If you’ve ever felt the sting of rising advertising costs without seeing the corresponding return on investment, you’re not alone. In today’s competitive landscape, managing and optimizing your advertising spend is crucial for scaling your business to that coveted million-dollar month.

In this comprehensive guide, we’ll dive deep into the strategies and tactics you can employ to not only determine if your advertising costs are genuinely too high but also how to effectively reduce them. We’ll explore financial modeling, identifying bottlenecks, playing the doubles game, and much more—all aimed at helping you optimize your funnel and maximize your ROI.

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Key Takeaways

• Financial Modeling is Essential: Understand whether your costs are truly high by modeling your financials.
• Identify Bottlenecks: Map out your entire funnel to pinpoint where improvements can be made.
• Play the Doubles Game: Focus on metrics that are easiest to double for maximum impact.
• Marketing Knobs vs. People Knobs: Prioritize adjustments that can yield immediate results.
• Optimize Ad Creatives and Targeting: Fresh, relevant ads can significantly reduce costs.
• Enhance Landing Pages and Applications: Simplify to reduce friction and improve conversion rates.
• Improve Show Rates and Close Rates: Engage leads effectively to increase appointments and sales.
• Be Aware of External Factors: Understand how market events and platform changes affect ad costs.

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Is Your Advertising Cost Really Too High?

Before making any adjustments, you need to determine whether your advertising costs are genuinely too high or if it’s just a perception. Often, businesses operate on gut feelings rather than hard data, leading to misguided strategies.

The Importance of Financial Modeling

Financial modeling involves mapping out all your costs and revenues to see if your advertising spend aligns with your profitability goals. By modeling your funnel, you can gain clarity on whether your cost per call, cost per sale, or any other metric is actually high.

Example:

I once worked with a client who was alarmed by their $450 cost per qualified call. Historically, they had a $200 cost per call and felt the increase was unsustainable. However, after financial modeling, we found they could tolerate up to an $1,100 cost per call and still be profitable. Their concern was based on anchor bias, comparing current costs to past figures without considering market changes.

Understanding Anchor Bias

Anchor bias occurs when you rely too heavily on the first piece of information encountered (the “anchor”) when making decisions. In advertising, this could be your historical cost per acquisition. Markets evolve, and so should your expectations. Platforms like Facebook and Google are publicly traded companies that aim to increase profits each quarter, often leading to higher ad costs over time.

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Identifying Bottlenecks in Your Funnel

After confirming that your advertising costs are indeed higher than they should be, the next step is to identify where the problem lies in your funnel.

Mapping Out Your Funnel Steps

List out each step in your marketing and sales process:

1. CPMs (Cost Per Thousand Impressions): Your cost to reach a thousand people.
2. Click-Through Rate (CTR): The percentage of people who click your ad.
3. Conversion Rate on Landing Page: The percentage who take action on your site.
4. Application Rate (if applicable): The percentage who fill out a form or application.
5. Show Rate: The percentage who show up for scheduled calls or demos.
6. Close Rate: The percentage of prospects who become customers.
7. Average Order Value (AOV): The average revenue per sale.
8. Return on Ad Spend (ROAS): The revenue generated per dollar spent on ads.
9. Lifetime Value (LTV): The total revenue from a customer over time.

Quantifying Your Data

For each step, gather the current data:

• CPM: Is your cost significantly higher than industry averages?
• CTR: Is your click-through rate low compared to benchmarks?
• Conversion Rates: Are your landing pages underperforming?
• Show and Close Rates: Are prospects failing to show up or convert?

By quantifying these metrics, you can pinpoint the bottleneck that’s inflating your advertising costs.

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Playing the Doubles Game

Once you’ve identified the bottleneck, it’s time to play the “Doubles Game.”

Finding the Easiest Metric to Double

Ask yourself: Which metric is the easiest to double?

• Low CTR: If your click-through rate is 0.4%, doubling it to 0.8% can significantly reduce your cost per click.
• High CPM: If your CPM is $130, finding ways to reduce it to $65 can halve your costs.

Impact of Doubling Metrics

Doubling a metric at the top of your funnel (like CTR or reducing CPM) has a compounding effect throughout your funnel, leading to exponentially lower costs per acquisition.

Example:

If your cost per call is $450 and you double your CTR, you could potentially bring that cost down to $225 without changing anything else in your funnel.

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Marketing Knobs vs. People Knobs

Understanding the difference between marketing knobs and people knobs is crucial for efficient optimization. Shout to Josh Troy, owner of Wires From Strangers for this perspective.

Quick Adjustments for Immediate Results

Marketing Knobs are elements you can adjust quickly and see immediate results:

• Ad Creatives: Changing images, headlines, or ad copy.
• Landing Pages: Tweaking headlines, layouts, or calls to action.
• Targeting Options: Adjusting demographics, interests, or placements.

These adjustments can often be made in minutes or hours and can have an immediate impact on your metrics.

Understanding the Time Factor

People Knobs involve changes that take longer to implement:

• Hiring and Training Sales Staff: Recruiting and onboarding new team members.
• Sales Processes: Overhauling your sales scripts or methodologies.

While important, these changes won’t yield immediate results and shouldn’t be your first focus when trying to quickly reduce advertising costs.

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Strategies to Improve Key Metrics

Let’s dive into specific tactics to optimize each part of your funnel.

Reducing High CPMs

High CPMs can result from:

• Ad Platform Penalties: Past disapprovals or bans.
• Misaligned Targeting: Serving ads to the wrong audience.
• Competitive Audiences: Targeting highly sought-after demographics.

Solutions:

• Audit Your Ad Account: Ensure compliance with platform policies.
• Revise Targeting: Test different demographics or interests.
• Update Ad Creatives: Align your ads with audience expectations.

Example:

During an election cycle, certain demographics become more expensive to target. By adjusting your audience targeting, you can avoid inflated CPMs due to political ad spending.

Boosting Click-Through Rates

A low CTR indicates your ads aren’t resonating with your audience.

Solutions:

• Refresh Ad Creatives: Use new images or videos that grab attention.
• Change Messaging and Tonality: Test different approaches—be more energetic or more conversational.
• Alter Environments and Accessories: Film in different locations or with different props to create variety.

Example:

A client reduced their cost per call by half by simply changing the tone of their ads from overly hypey to a calmer, more genuine approach.

Landing Page Optimization

Your landing page is critical for conversions.

Solutions:

• Headline Testing: Experiment with different headlines to see what resonates.
• Improve Play Rates: If you have a video, ensure the thumbnail is enticing and the content is engaging.
• Simplify Forms: Reduce the number of fields in your application or sign-up forms.

Example:

By reducing an application from 11 questions to 4, a client decreased their cost per call by 66% without negatively affecting lead quality.

Enhancing Show Rates

Increasing the percentage of prospects who show up for scheduled calls can drastically improve ROI.

Solutions:

• Personal Outreach: Have your sales team send personalized messages or videos.
• Increase Touchpoints: Use a “Hammer Them” strategy with multiple emails and texts leading up to the call.
• Improve Deliverability: Ensure your emails aren’t landing in spam folders.

Example:

A client improved their show rates by having salespeople send selfie videos to prospects before the call, creating a personal connection.

Increasing Close Rates

Closing more deals boosts revenue without increasing ad spend.

Solutions:

• Sales Training: Invest in training programs to enhance your team’s skills.
• Structured Sales Processes: Implement a consistent methodology for handling leads.
• Quality Lead Nurturing: Provide valuable content to prospects to keep them engaged.

Example:

Implementing a comprehensive sales training program led to a client increasing their close rate by 15%, significantly impacting their bottom line.

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Understanding External Factors Affecting Ad Costs

Be aware of elements outside your control that can influence ad costs.

Market Events and Seasonality

• Q4 Spending: Advertising costs typically rise in the fourth quarter due to increased competition.
• Election Cycles: Political advertising can inflate costs and consume ad inventory.
• Black Swan Events: Unpredictable events can drastically affect market conditions.

Strategies:

• Plan Ahead: Allocate budget increases for known expensive periods.
• Flexible Targeting: Be prepared to adjust your strategies based on market conditions.

Platform Policies and Penalties

• Policy Changes: Platforms frequently update their advertising policies.
• Account Health: Maintaining a good standing with ad platforms can prevent penalties.

Strategies:

• Stay Informed: Regularly review platform policies.
• Compliance Audits: Periodically check your ads for compliance issues.

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Conclusion

High advertising costs can be a significant hurdle, but they’re not insurmountable. By understanding your metrics, identifying bottlenecks, and implementing targeted strategies, you can reduce your advertising costs and improve your ROI.

Remember:

• Math Over Gut Feelings: Always rely on data to guide your decisions.
• Focus on Quick Wins: Adjust marketing knobs before tackling larger, more time-consuming changes.
• Continuous Optimization: The market is always evolving; your strategies should too.

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Next Steps

Ready to take your business to the next level?

• Join My Inner Circle Program: Gain exclusive access to advanced strategies, quarterly masterminds, and personalized coaching.
• Enroll in the Master Internet Marketing Program: Deepen your understanding of high-level marketing tactics.
• Work with My Marketing Agency: If you’re ready for hands-on assistance, explore partnering with my agency for tailored solutions.

Let’s work together to scale your business to new heights!